UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-Q/A
(Mark one)
[X] Quarterly report pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended April 30, 1995
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the transition period from _______ to ________
Commission file number 0-8419
SBE, INC.
_____________________________________________________
(Exact name of registrant as specified in its charter)
California 94-1517641
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4550 Norris Canyon Road, San Ramon, California 94583
(Address of principal executive offices and zip code)
(510) 355-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares of Registrant's Common Stock outstanding as of June 9,
1995 was 2,061,295.
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SBE, INC.
INDEX TO APRIL 30, 1995 FORM 10-Q/A
PART I Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of
April 30, 1995 and October 31, 1994 3
Condensed Consolidated Statements of Operations for the
three and six months ended April 30, 1995 and 1994 4
Condensed Consolidated Statements of Cash Flows for the
six months ended April 30, 1995 and 1994 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II Other Information
Item 6 Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
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Part I. Financial Information
Item 1. Financial Statements
<TABLE>
SBE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, 1995 and October 31, 1994
(In thousands)
<CAPTION>
April 30, October 31,
1995 1994
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ (105) $ 2,566
Short-term investments 4,302 ---
Trade accounts receivable, net 3,360 3,444
Inventories 2,474 2,048
Other 1,513 709
------- -------
Total current assets 11,544 8,767
Property, plant and equipment, net 3,573 2,782
Investments --- 5,454
Capitalized software costs, net 579 230
Other 382 372
------- -------
Total assets $16,078 $17,605
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 664 $ 802
Other accrued expenses 619 529
------- -------
Total current liabilities 1,283 1,331
Noncurrent liabilities 439 410
------- -------
Total liabilities 1,722 1,741
------- -------
Shareholder's equity:
Common stock 7,469 7,393
Unrealized loss on investments (277) (525)
Retained earnings 7,164 8,996
------- -------
Total shareholders' equity 14,356 15,864
------- -------
Total liabilities and shareholders' equity $16,078 $17,605
======= =======
</TABLE>
See accompanying notes
3
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<TABLE>
SBE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and six months ended April 30, 1995 and 1994
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three months ended Six months ended
April 30, April 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $ 4,768 $ 5,627 $ 9,883 $10,694
Cost of sales 2,350 2,405 4,554 4,688
------- ------- ------- -------
Gross profit 2,418 3,222 5,329 6,006
Product research and development 2,343 1,168 3,928 2,177
Sales and marketing 1,229 577 1,996 1,230
General and administrative 1,029 809 2,055 1,617
------- ------- ------- -------
Operating (loss) income (2,183) 668 (2,650) 982
Interest income 17 98 138 207
------- ------- ------- -------
(Loss) income before income taxes (2,166) 766 (2,512) 1,189
(Benefit) provision for income taxes (583) 222 (680) 357
------- ------- ------- -------
Net (loss) income $(1,583) $ 544 $(1,832) $ 832
======= ======= ======= =======
Net (loss) income per common share $ (0.77) $ 0.26 $ (0.90) $ 0.40
======= ======= ======= =======
Weighted average common shares 2,047 2,111 2,044 2,099
======= ======= ======= =======
</TABLE>
See accompanying notes
4
<PAGE>
<TABLE>
SBE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended April 30, 1995 and 1994
(In thousands)
<CAPTION>
1995 1994
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $(1,832) $ 832
Adjustments to reconcile net (loss) income to net
cash (used) provided by operating activities:
Depreciation and amortization 581 594
Changes in assets and liabilities:
Decrease in trade accounts receivable 84 928
(Increase) in inventories (426) (215)
(Increase) in other assets (814) (155)
(Decrease) increase in trade accounts payable (138) 139
Increase (decrease) in other liabilities 119 (367)
------- -------
Net cash (used) provided by operating activities (2,426) 1,756
------- -------
Cash flows from investing activities:
Purchases of property and equipment (1,372) (183)
Capitalized software (349) (10)
Investments, net 5,702 (703)
Short-term investments (4,302) ---
------- -------
Net cash provided (used) by investing activities (321) (896)
------- -------
Cash flows from financing activities:
Principal payments on capital lease obligations --- (26)
Proceeds from stock plans 76 69
------- -------
Net cash provided by financing activities 76 43
------- -------
Net (decrease) increase in cash and cash equivalents (2,671) 903
Cash and cash equivalents at the beginning of period 2,566 2,224
------- -------
Cash and cash equivalents at the end of period $ (105) $ 3,127
======= =======
</TABLE>
See accompanying notes
5
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SBE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Interim Period Reporting:
The condensed consolidated financial statements are unaudited and include all
adjustments consisting of normal recurring adjustments which are, in the
opinion of management, necessary for a fair presentation of the financial
position and results of operations and cash flows for the interim periods. The
results of operations for the quarter and six months ended April 30, 1995 are
not necessarily indicative of expected results for the full 1995 fiscal year.
Certain information and footnote disclosures normally contained in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the financial statements and
notes contained in the Company's 1994 Annual Report to Shareholders.
2. Inventories:
Inventories comprise the following (in thousands):
April 30, October 31,
1995 1994
Finished goods $ 780 $ 559
Subassemblies 246 217
Parts and materials 1,448 1,272
------ ------
$2,474 $2,048
3. Net (Loss) Income Per Common Share:
Net (loss) income per common share was computed by dividing net (loss) income
by the weighted average number of shares of common stock and dilutive common
stock equivalents outstanding. Common stock equivalents relate to stock
options.
4. Bank Facility:
Subsequent to April 30, 1995, the Company obtained a loan commitment for a
$4,000,000 revolving line of credit for working capital purposes. Borrowings
under the line of credit bear interest at the bank's prime rate plus one half
of one percent and are secured by accounts receivable and other assets.
Borrowings are limited to 75% of adjusted accounts receivable balances. The
credit line, which expires on April 30, 1996, requires the Company to meet
certain financial covenants and maintain a tangible net worth of $10,800,000 on
a quarterly basis. As of June 9, 1995, there were no borrowings outstanding
under the line of credit.
6
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5. Short-Term Investments:
In the quarter ended April 30, 1995, the Company reclassified its investments,
previously included in noncurrent assets, to short-term investments, reflecting
the intent of management to utilize these assets to support operations over the
next year. The Company classifies these investments as "available for sale"
and records them at fair market value with any unrealized losses or gains
reflected as a separate component of shareholders' equity. The aggregate cost
of the investments on April 30, 1995, was $4,579,000 and the fair market value
was $4,302,000. The unrealized holding loss on these investments was reduced
by $248,000 in the six months ended April 30, 1995. Realized gains and losses
are included in interest income.
6. Reclassifications:
Certain reclassifications have been made to the 1994 condensed consolidated
financial statements to conform to the 1995 presentation.
7. Restatement of Financial Statements:
The Company has restated its financial statements for the three and six months
ended April 30, 1995 to reflect a $650,000 writedown of capitalized software
costs. The writedown consisted of costs related to products for which
marketing efforts were discontinued and of costs previously capitalized related
to products under development which underwent design changes that impacted the
determination of technological feasibility as defined by Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased, or otherwise Marketed." Both of these events occurred in the
three month period ended April 30, 1995, and, accordingly, should have been
reflected in that period. The effect of this adjustment was to increase the
second quarter and six-month net loss by $474,000.
7
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SBE, INC.
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Second Quarter 1995 Compared to Second Quarter 1994
The Company's sales are dependent upon a customer base that is highly
concentrated, and consequently the timing of significant orders from major
customers causes the Company's operating results to fluctuate. The Company
expects to expand and diversify its customer base during fiscal 1995 through
the expansion of its existing sales channels and the distribution of new remote
internetworking products. The Company cannot determine whether it will be
successful in the expansion of its sales channels or with the introduction of
new products.
Net sales for the second quarter of fiscal 1995 were $4.8 million, down from
net sales of $5.6 million for the second quarter of the prior year. This
decline is primarily due to the decrease in sales to Cisco Systems, Inc., which
declined by $1.4 million in the second quarter of fiscal 1995 from the second
quarter of fiscal 1994. The decrease of sales to Cisco was partially offset by
increases in sales of the Company's VME communications products. Sales of VME
products increased 54 percent in the second quarter of 1995 compared to the
same period of 1994. This increase was principally due to higher sales of the
Company's high-speed, serial communications controller product to America
Online.
Net sales for the six months ended April 30, 1995 were $9.9 million, down from
$10.7 million for the same period of 1994. The decrease in sales was primarily
due to a $3.1 million decline in sales to Cisco, partially offset by increased
VME product sales.
Sales to America Online and one other customer accounted for 27 and 16 percent
of net sales, respectively, for the quarter ended April 30, 1995. This
compares to three customers accounting for an aggregate of 46 percent of net
sales for the quarter ended April 30, 1994. For the six months ended April 30,
1995, America Online and one other customer accounted for 27 and 15 percent of
net sales, respectively. For the same period of 1994 Cisco and one other
customer accounted for 28 and 10 percent of net sales, respectively.
The Company's gross profit as a percent of net sales decreased from 57 percent
in the second quarter of fiscal year 1994 to 51 percent in the second quarter
of fiscal year 1995. This decrease was due to excess manufacturing capacity
and to additional expenses for manufacturing infrastructure to support the new
remote internetworking products. Gross profit for the first six months of 1995
declined to 54 percent from 56 percent for the period ending in 1994 as a
result of changes in product mix and additional expenses to support the launch
of the new remote internetworking products.
Product research and development (R&D) expenses as a percent of sales increased
to 49 percent for the second quarter of 1995 compared to 21 percent for the
same period of 1994. The increase was due to expenditures to support the
development of the new remote internetworking product line. No R&D costs
related to software development were capitalized in the second quarter of
fiscal 1995. No software development costs were capitalized for the second
quarter of 1994. The Company anticipates that R&D expenses for the remainder
of fiscal 1995 will continue to be significantly higher than the expenses
during fiscal 1994.
8
<PAGE>
In accordance with SFAS 86, the Company has amended its financial statements as
of April 30, 1995 and for the three- and six-month periods then ended to record
an additional $650,000 of product research and development expenses previously
recorded as capitalized software costs.
Engineering costs relating to new product designs and product revisions are
charged to product research and development expense when incurred. Contractual
reimbursements under joint development contracts are accounted for as a
reduction of product research and development expense. For the three and six
months ended April 30, 1995, the Company received $137,000 and $189,000,
respectively, in contractual reimbursements compared to $76,000 and $146,000
for the same periods of 1994.
Sales and marketing expenses for the three and six months ending April 30, 1995
increased by 113 percent and 62 percent, respectively, from the same periods of
1994, primarily due to increased expenditures associated with the Company's
plans to release the new line of remote internetworking products. The Company
expects that sales and marketing expenses will continue to be above fiscal 1994
expenses for the remainder of fiscal 1995 as the Company develops and expands
its marketing channels for the new remote internetworking products.
General and administrative costs for the three and six months ended April 30,
1995 increased by 27 percent from the same periods of 1994. This increase is
due to the Company incurring additional costs to recruit new staff and to
install new systems and structure to support the new internetworking product
line.
The Company's effective tax benefit was 27 percent in the second quarter of
1995 compared to a provision of 29 percent for the second quarter of 1994. The
tax benefit for the second quarter of fiscal 1995 will be realized through the
utilization of a net operating loss carryback to prior years. The tax benefit
rate approximates the effective tax rate the Company anticipates for the full
fiscal year ending October 31, 1995.
The Company lost $1.6 million for the three months ending April 30, 1995
compared to a profit of $544,000 for the same period of fiscal 1994. This loss
is due to lower sales and higher expenses for product research and development,
sales and marketing, and general and administrative costs associated with the
development and introduction of the new remote internetworking product line.
The net loss for the six months ended April 30, 1995 was $1.8 million compared
to net income of $832,000 for the same period of 1994. The six month decline
is principally due to the same reasons as the quarterly decline discussed
above. In the short term the Company expects that the increased expense levels
for the new products will adversely affect profitability until new product
sales begin to generate sufficient revenue. Accordingly, there can be no
assurance the Company will be able to generate sufficient sales to achieve
profitability.
Liquidity and Capital Resources
As of April 30, 1995, the Company had a cash and cash equivalents deficit of
$105,000 compared to cash and cash equivalents of $2.6 million as of October
31, 1994. For the six months ending April 30, 1995 the Company used $2.4
million of cash flows in operations compared to providing $1.8 million for the
same period in 1994. This decrease in cash from operations was primarily due
to the net loss for the period, increased inventories, and income taxes
receivable. The Company had net working capital on April 30, 1995 of $10.3
9
<PAGE>
million compared to net working capital of $7.4 million on October 31, 1994.
This increase in working capital was due principally to the reclassification of
investments from long-term to short-term investments.
During the six months ending April 30, 1995, the Company capitalized $349,000
in software development costs for its new remote internetworking product line
and recorded a $650,000 writedown of capitalized software costs during the
quarter. Additionally, the Company purchased $1,372,000 of new equipment in
the first six months of fiscal 1995 compared to $183,000 for the first six
months of fiscal 1994. The Company financed these additions using existing
cash balances, investments, and credit facilities.
On May 23, 1995, the Company received a commitment for a $4.0 million revolving
line of credit for working capital purposes that expires on April 30, 1996.
Borrowings under the credit line bear interest at the bank's prime rate plus
one half of one percent and are secured by accounts receivable and other
assets. Borrowings are limited to seventy-five percent of adjusted accounts
receivable balances and require the Company to maintain certain financial
covenants. As of June 9, 1995 the Company did not have any balances
outstanding under its revolving line of credit.
Based upon the current operating plan, the Company anticipates that internally
generated funds, cash and cash equivalents, capital leases, and credit
facilities should be adequate to satisfy its liquidity, business development,
and capital resource needs through fiscal 1995.
10
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SBE, INC.
Part II Other information
Item 6. Exhibits and Reports on Form 8-K
The following documents are filed as part of this report:
(a) Exhibits - EX-27 - Restated Financial Data Schedule
(b) The Registrant did not file any reports on Form 8-K during the quarter
ended April 30, 1995.
11
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SBE, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, as of January 26, 1996.
SBE, Inc.
Registrant
/S/ Timothy J. Repp
Timothy J. Repp
Chief Financial Officer, Vice President of
Finance (Principal Financial and Accounting
Officer)
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